Identifying the nexus among environmental performance, digital finance, and green innovation: New evidence from prefecture-level cities in China

Globally, nations are increasingly focusing on green innovation in their environmental protection efforts as part of sustainable development, and digital finance is playing a vital role in enhancing green innovation. Employing annual data from 220 prefecture-level cities between 2011 and 2019, we empirically analyze the connections among environmental performance, digital finance, and green innovation via the Karavias panel unit root test with structural breaks, the Gregory-Hansen structural break cointegration test and pooled mean group (PMG) estimation. The following four points are the key conclusions: (1) The results support cointegration links between these variables when structural breaks are considered. (2) The PMG estimation outcomes indicate that green innovation and digital finance may have a favorable long-term effect on environmental performance. (3) For better environmental performance and more green innovation, the level of digitalization of digital finance is crucial. (4) The potential of digital finance and green innovation to improve environmental performance has not been fully realized in the western region of China.